Cabinet nod to 'KD 5bn' bailout plan
KUWAIT CITY: The economic rescue package, which was approved by the Cabinet Monday, is expected to be forwarded to the parliamentary Finance and Economic Affairs Committee within 48 hours, Committee Chairman MP Abdulwahid Al-Awadhi told the Arab Times Monday. Speaking to the Arab Times following news that the Cabinet has given the green light to a five billion dinar bail out package (according to sources), to help ailing investment companies, banks and the local bourse, Al-Awadhi affirmed the committee will prioritize the issue and refer it to the Parliament for inclusion in the agenda of the session on Feb 10, Al-Awadhi said the committee will do its best to discuss the plan prior to the next regular session, which was allocated to discuss the local economic conditions. "We will race against time to finalize our discussions before Feb 10," he added.
He also called on the parliamentarians to attend the committee meetings and emphasized the importance of hearing the views of experts from the private sector. Asked if the approved rescue plan came from the Central Bank of Kuwait (CBK) governor, Al-Awadhi asserted "we don't want to jump into conclusions but, as far as I know, the Cabinet will refer a number of bills presented by a task force headed by the CBK governor and we have yet to receive details of the plan". "Some sources what had been approved was only in the first phase of a draft bill on the economic rescue package. These sources said the Cabinet will discuss the second phase of the bill in its extraordinary meeting on Thursday, adding it will be forwarded to the Parliament next Sunday.
The economic rescue plan, which was submitted by Chairman of Economic Team and Central Bank of Kuwait Governor Sheikh Salem Abdulaziz Al-Sabah, contains 36 articles in five chapters. Sources said the plan brought hope to many people, who suffered the brunt of the global financial meltdown.
However, some MPs were of the opinion the plan came very late and they have no time to review it for submission to the Parliament on Feb 10, indicating it might be forwarded to the National Assembly on March 10. Sources close to the parliamentary Finance and Economic Affairs Committee said the committee cannot approve such a sensitive and important bill within 48 hours as it will need assistance from the economic experts and financial analysts outside the Parliament.
Sources expect the Parliament to amend five articles in the draft bill (8, 9, 11, 29 and 34). Sources revealed Article 9 states that Kuwait Investment Authority (KIA) can resell part of the fund value at purchase price and banks can buy part of the fund to maintain its liquidity. The investment companies will be asked to return the deeds and shares purchased from the fund once their financial situation gets better at the same price. Sources said a large number of MPs might reject this article due to some contradictions, without elaborating the points of conflict.
On a related issue, highly reliable government sources disclosed the Cabinet has agreed to boost the economy in line with the economic rescue package. This decision, sources say, will reduce pressure on the public budget by minimizing the expenses of delegates on official mission outside the country. Moreover, the joint ministerial economic and legal committee will implement procedures to reduce the value of government contracts for the maintenance and repair of public buildings and it will also look at the possibility of renting out government buildings. On the other hand, sources said the Cabinet has recommended maintaining the budget, particularly the amount allocated for development projects. It has also asked the concerned authorities to refrain from taking steps that can negatively affect the economy, especially in the private sector.
Meanwhile, the parliamentary Public Funds Protection Committee discussed Sunday the Audit Bureau report regarding the public funds invested at Kuwait Petroleum Corporation (KPC) and its affiliate companies from Jan 1, 2005 until June 30, 2008. Committee Rapporteur MP Rija Hujailan said the representatives from KPC and the bureau attended the meeting in which the latter presented its observations about the public funds invested at KPC. The corporation's representatives, on the other hand, responded to the comments of the bureau and promised to provide the necessary information to clarify the issue and help the committee prepare its final report, which will be referred to the Parliament.
On another issue, MP Dr Daifallah Bouramiya, one of five MPs who presented a draft bill to purchase and reschedule payments of the citizens' consumer loans, said the draft will end 80 percent of the problems of 275,000 Kuwaitis struggling to pay loans obtained from banks and investment companies. Bouramiya clarified the demand to write off loans is a second option after this bill, adding the decision to push for the implementation of the loans purchase proposal is "a political scheme for the benefit of the public". He also urged parliamentarians, especially the ICM members, to support this bill. On the other hand, reliable parliamentary sources revealed this bill might be rejected as it has, so far, obtained only 18 votes. Sources said the Cabinet might succeed in dropping the proposal on Feb 10 for purely economic reasons.
Sources added the proposed investment fund will not pump large amounts of money into companies without interest but it will mortgage the loans, taking into consideration the financial feasibility of the companies and divide them into three levels. An auditing panel from the Ministry of Finance, Kuwait Investment Authority and Central Bank of Kuwait, along with other economic bodies, will manage the fund. Amidst escalating concerns about the current economic situation, threats to question the premier resurfaced as announced by Islamist MP Dr Faisal Al-Muslim. He said Sheikh Nasser should brace himself once the MPs decide to use their constitutional tools, adding the premier should not dodge grilling requests or accuse those who present such requests of impeding development. Al-Muslim has also rejected the use of public funds to serve the interests of certain individuals or companies who should bear their own losses. "However, we have to look into the Cabinet's proposal before judging it," he added.
A Kuwaiti lawmaker on Monday questioned the finance minister over the sharp drop in the value of the dinar, which in the past few months has plunged around 10 percent against the dollar. In May 2007, Kuwait ended the dinar's link to the dollar and pegged it to a basket of currencies, in which the dollar formed the lion's share. The dinar, composed of 1,000 fils, subsequently gained around nine percent against the then waning US currency, strengthening from 289.14 fils to the dollar on May 20, 2007 to as high as 264.00 fils a dollar in July last year. But the dinar began retreating after that and its decline accelerated in the past two months. On Monday, the dollar was trading at 290.40 fils, which means the dinar has weakened from 3.79 dollars to just 3.44 dollars.
MP Abdulaziz al-Shayeji asked Finance Minister Mustafa al-Shamali if the drop in the dinar is "the result of deliberate policies by (Kuwait's) central bank," and what measures he is taking to safeguard the value of the local currency. The question was submitted in written form to parliament. The minister has two weeks to send a written reply, or can ask for an extension. When it ended the dinar's link to the dollar, the central bank cited fighting inflation as the main reason, besiding raising the dinar's purchasing powers against other major currencies like the euro. The inflation rate in Kuwait was above 11 percent in August, the latest available figure, but central bank governor Sheikh Salem Abdulaziz al-Sabah said last month that economic indicators show inflation was on the decline.
A 10 percent drop in the dinar against the dollar means that Kuwait's oil revenues, obtained in dollars, would increase by an equal percentage when converted into the local currency. Newspapers said the plan includes setting up a fund to buy assets from firms hit by the global crisis. It also includes measures to guarantee deposits and loans at banks. In November, Central Bank Governor Sheikh Salem Abdul-Aziz al-Sabah said the government planned to set up a fund to buy assets at a discount from investment firms and issue them promissory notes enabling them to borrow from banks. The government is facing increasing calls to support troubled investment firms, which make up more than half of the country's listed companies and have borrowed heavily to finance expansions during an oil boom in the past few years.
Last year, Kuwait had to save its fourth-largest lender, Gulf Bank, after it was hit by derivatives losses, with the countrys sovereign wealth fund, the Kuwait Investment Authority (KIA), becoming a major shareholder.
Kuwait has already guaranteed bank deposits to boost confidence and allowed KIA to pump more cash into the bourse, which fell 38 percent in 2008. The plan calls for speedy measures to rescue a number of troubled investment companies that have failed to repay their local and foreign debts. Local media reported the package would allow the use of public funds to provide urgent loans to companies facing a cash flow crisis. A number of Kuwaiti investment companies have defaulted on loans as credit facilities have become difficult to obtain and the value of their assets has dropped sharply. The scheme also envisages the state purchasing toxic assets to shore up the banking sector. It would allocate KD 4 billion ($14 billion) to guarantee old and new bank credit facilities, to overcome the credit crunch and help provide new loans for troubled investment firms.
By Dhalia Kholaif and Abubakar A. Ibrahim
© Arab Times 2009
